The Corporate Average Fuel Economy (CAFE) mandate was first established in 1975 and until this past April 1 has changed little since. It's been years of debate, but finally, the standards have been significantly updated. By model year 2016, the fuel efficiency of the new vehicle fleet sold in the United States will have to average at least 34.1 miles per gallon.

The tailpipe emissions of our cars are regulated by the National Highway Traffic Safety Administration (NHTSA) and the Environmental Protection Agency (EPA). The EPA set standards for pollutants like NOX, SOX and particulates. The NHTSA took care of writing CAFE fuel-economy regulations. The EPA, however, is the rules enforcer for both sets of regulations and sets fines if automakers fail to meet the target.

But now, thanks to calls to regulate greenhouse gas emissions, the EPA also controls carbon-dioxide production. As any gearhead will tell you, the amount of CO2 produced is directly related to how much fuel a car burns. So for these new CAFE rules, which were finalized on April 1, 2010, both agencies are effectively rating fuel economy.

The EPA has mandated a fleet CO2 average of 250 grams per mile (155.4 g/km). That target actually equates to 35.5 mpg, which is higher than the NHTSA 34.1 requirement. But the EPA will give automakers credits for improvements to air-conditioning systems that also reduce leakage of refrigerants into the atmosphere or reduce fuel consumption while the system is operating, so the two standards are more or less in sync. These standards apply to all 50 states and, for now at least, California won't be setting its own standards. The issue of different standards for different states has been a real headache for automakers, and this new bill appears to offer a solution.

Do not expect the fuel-economy numbers on new-car window stickers to change drastically. Over the years those figures, which are produced by the EPA, have been adjusted to better approximate what actual consumers will achieve. For the purposes of CAFE, however, there's a different calculation that's far more optimistic in terms of fuel economy. Thus a car that achieves 35 mpg for purposes of the CAFE calculation will likely wear a window sticker that has a combined rating of somewhere around 26 to 27 miles per gallon.

The regulations are quite complicated and in the over-300-page law there are countless nuances. Until now, every automaker has had to meet the same fleet-average standard regardless of what type of vehicles it built. A sports car maker such as Porsche had to hit the same average as a company that built a full line of mainstream cars such as Honda or General Motors. Going forward, the EPA and the NHTSA will establish a target for every automaker and every model that is based on its footprint and sales. The goal of the new rule is to see every vehicle improve, with the fleet averages increasing by about 4.3 percent per year.

The footprint is defined as the average of the front and rear track multiplied by the wheelbase or the area between the four wheels. Larger vehicles would have lower targets while smaller vehicles would be required to hit much tougher targets. That same procedure is now in effect across the board for cars and trucks.

For example, the new Ford Fiesta has a footprint of 39.3 square feet while the Taurus has a footprint of 51.3 square feet. By 2016, the Taurus will need to hit a combined 36 mpg while the Fiesta has to return over 40 mpg. Those numbers are approximate right now because it will vary depending on sales of the different vehicles.

This idea has been promoted by U.S.-based automakers for many years because their truck- and SUV-heavy sales mix was pulling down averages. The concern with footprint-based rules is that it would encourage automakers to build larger vehicles in order to get lower targets. NHTSA has addressed this with the flexible targets. Because the overall fleet average is fixed at 34.1 mpg, it must be met regardless of the sales mix.

If automakers change vehicle designs to have longer wheelbases and wider tracks, thus lowering their fuel-economy targets, it will be only a temporary advantage. The footprint target curves will end up being adjusted upward in order to achieve the statutory requirement of 34.1 mpg.

Similarly, if an automaker sells more large vehicles or trucks, its individual targets will be adjusted upward so that its overall fleet average hits the statutory requirement. The individual vehicle targets are actually more of a guideline than a hard and fast rule. For example, there will be no penalties for General Motors or Toyota if the Silverado or Tundra pickups fail to beat targets as long as other vehicles sold by that company are efficient enough to allow the fleet average to meet the minimum.

Automakers will be able to get some help in achieving their targets if they add advanced technology vehicles to their fleets. Plug-in vehicles don't produce any direct emissions or use fossil fuel while operating in electric mode. However, unless they are charged only from renewable sources such as solar or wind there are upstream emissions from power plants. Up through 2016, the EPA will nonetheless count a limited number of these as zero-CO2 vehicles for the percentage of their operating time that is electric.

Only the first 200,000 fuel cell (FCV), battery–electric (BEV) or plug-in hybrid (PHEV) vehicles sold by an automaker between 2012 and 2016 will count toward this incentive. If an automaker sells at least 25,000 such vehicles in the 2012 model year the total cap jumps to 300,000. So expect to see lots of carmakers pushing deals on BEVs and PHEVs and maybe even some FCVs during what is likely to be an extended 2012 model run in order to hit that 25,000 number.

In automotive-industry time, model year 2016 is only five years away as we are now coming up on 2011. Given the lead times to develop and build new vehicles, that's not much time, especially for smaller volume manufacturers such as Ferrari, Aston Martin or even Porsche. Under the new rules, companies with sales of less than 50,000 units annually will be given a partial deferment from meeting the required improvements over the phase-in period.

As long as a company like Porsche shows that it is making progress on improving efficiency and reducing emissions, the EPA will cut them some slack. Those companies will be able to exceed the standards by up to 25 percent for up to 250,000 vehicles over the five years. Where possible those automakers will also have to purchase credits from companies that exceed the standards. A further round of rule making in 2012 will go back and take another look at this program and make further adjustments.

Automakers with fewer than 5000 sales a year such as Ferrari or Lotus will be completely exempt from the CO2 standards until 2016 as long as they demonstrate that they are making a good-faith effort to buy credits. EPA plans to write CO2rules for small-volume manufacturers that would go into effect in the 18 months following 2016.

While the new rules will no doubt lead to more efficient vehicles being produced over the next decade, they are unlikely to foment a radical change in our vehicle fleet. The reality is that many of the cars and trucks available today already beat the fleet-average requirement and many more will as they are replaced in the next couple of years. And it will take much longer to replace the entire U.S. fleet. There are over 200 million existing vehicles on American roads and it could take up to two decades to replace most of those.

Still, in the combined analysis of the program, the EPA and the NHTSA estimate that the new rules will save 61 billion gallons of fuel over the five-year period from 2012 to 2016. Over the same period, CO2 emissions should be reduced by roughly 655 million metric tons. The agencies estimate that almost 20 billion gallons of fuel will be saved in 2016 alone, which will be a significant amount for the new vehicle fleet.